Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division

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1 Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division Delta Health Alliance, Inc. Docket No. A Decision No March 12, 2015 DECISION Delta Health Alliance, Inc. (DHA) appealed the determination of the Health Resources and Services Administration (HRSA) disallowing $990,016 DHA charged to federal funds awarded by HRSA for the period July 1, 2009 through November 30, During the proceedings before the Board, HRSA stated that it had identified additional unallowable costs for the period in question and increased the disallowance amount to $1,089,052. HRSA Br. dated 10/6/14, at 3-4. DHA concedes that a total of $13, was properly disallowed but maintains that the disallowance of the remaining amount should be reversed. DHA Br. at 5; DHA Reply Br. at 3, 18; DHA Ex. 31, line 86. For the reasons set out below, we reverse the disallowance in the amount of $23, and uphold the disallowance in the amount of $1,065,500.77, which includes the $13, DHA concedes is unallowable. In addition, we remand the case to HRSA to obtain input from the Division of Cost Allocation regarding whether DHA s indirect cost rate agreement should be reopened and recalculated to take into account certain legal fees that we find are not properly charged as direct costs. Background DHA is a non-profit organization located in Stoneville, Mississippi. Its mission is to improve the health of residents of Mississippi between the Mississippi and Yazoo rivers (the Delta region) through access to high quality health care, community outreach programs, and educational services. Most of DHA s funding comes from federal sources: the Department of Health and Human Services (HHS), including several HHS operating components in addition to HRSA, the U.S. Department of Education, and the U.S. Department of Agriculture. DHA also receives a small percentage of non-federal funding from foundations and other private sources. DHA Ex. 6, at 2; DHA Ex. 1 (document titled DHA Accomplishments ). DHA received more than a dozen federal grants over the time period at issue here. DHA Ex. 1.

2 2 HRSA s Office of Rural Health Policy awarded a grant to DHA for a project titled Delta Health Initiative (DHI) for a five-year project period beginning July 1, HRSA Ex. A. Public Law No , Title II appropriated funds for carrying out the Medicare rural hospital flexibility grants program under section 1820 of [the Social Security] Act (of which $25,000,000 is for a Delta health initiative Rural Health, Education, and Workforce Infrastructure Demonstration Program which shall solicit and fund proposals from local governments, hospitals, universities, and rural public health-related entities and organizations for research development, educational programs, job training, and construction of public health-related facilities). [1] Consistent with the statutory authority, DHA describes the purpose of the DHI project as funding an alliance of providers to address longstanding unmet rural health needs in the Delta (e.g., access to health care, health education, research, job training, capital improvements) with a goal of improv[ing] the health of people living in this historically distressed region. DHA Br. at 2. HRSA awarded DHA $25,289,768 for the DHI project for the budget period July 1, 2009 through June 30, 2010 and a total of $34,174,401 for the remaining budget periods, which began July 1, 2010 and went through September 30, DHA Ex. 6, at 6. DHA used the DHI grant to fund numerous projects, including the Indianola Promise Community (also referred to in the record as the Delta Promise Community) and Electronic Health Records. See, e.g., DHA Ex. 34, at The award notices for each of the budget periods at issue here state that the award is subject to the terms and conditions incorporated either directly or by reference in CFR Part 74 or 45 CFR Part 92 as applicable. HRSA dated 1/13/15, attachments. Part 74 contains uniform administrative requirements governing HHS awards to nonprofit organizations like DHA as well as subawards made by the direct recipient of an award. 45 C.F.R. 74.1(a), 74.5(a). 3 Part 74 requires generally that a recipient of federal funds have a financial management system that provides for "[r]ecords that identify adequately the source and application" of funds for grant activities C.F.R. 74.2l(b)(2). 1 The grant award notices identify this provision as the authority for the award. 2 HRSA made an award for the budget period July 1, 2010 through June 30, 2011 and ultimately extended that budget period through September 30, HRSA dated 1/13/15, attached award notices. 3 Section 74.1(a) of 45 C.F.R. provides that the uniform administrative requirements in Part 74 apply to HHS grants and agreements as well as [s]ubgrants or other subawards awarded by recipients of HHS grants and agreements. On December 19, 2014, HHS issued an interim final rule that supersedes 45 C.F.R. Part Fed. Reg We cite to the provisions of Part 74 in effect when the awards at issue here were made.

3 3 Section incorporates by reference the cost principles in OMB (Office of Management and Budget) Circular A-122, codified at 2 C.F.R. Part 230 ( ). The cost principles require that, among other things, costs be: reasonable for the performance of the award, allocable to the award, accorded consistent treatment, determined in accordance with generally accepted accounting principles, and adequately documented. 2 C.F.R. Part 230, App. A, A.2.a, d, e, g. Paragraph A.4 of Appendix A to Part 230 states in part that a cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. The Board has repeatedly held that under the applicable regulations and cost principles, a grantee has the burden of documenting the existence and allowability of its expenditures of federal funds. Suitland Family & Life Dev. Corp., DAB No. 2326, at 2 (2010) (citation omitted). Once a cost is questioned as lacking documentation, the grantee bears the burden to document, with records supported by source documentation, that the costs were actually incurred and represent allowable costs, allocable to the grant. Northstar Youth Servs., Inc., DAB No. 1884, at 5 (2003). The award notices also contain a standard term stating that unless otherwise noted in the award notice, [a]ll discretionary awards issued by HRSA are subject to the HHS Grants Policy Statement (HHS GPS)[.] 4 Another standard term states in part that [i]n addition to the prior approval requirements identified in [45 C.F.R.] Part 74.25, HRSA requires grantees to seek prior approval for significant rebudgeting of project costs. HRSA conducted an Incurred Cost Review of the DHI award in December 2011 to determine if costs claimed for the period July 1, 2009 through November 30, 2011 were allowable, reasonable and allocable under the grant terms and conditions and applicable Federal regulations. DHA Exs. 5, 6, at 2, 8. The review report identified a total of $2,154,670 in unallowable direct costs and associated indirect costs. DHA Ex. 6, at 3; see also DHA Ex. 9, at 1. In a March 22, 2013 letter transmitting the report to DHA, HRSA gave DHA an opportunity to provide any additional documentation in support of the amount owed of $2,154,670 that you would like us to consider as part of the audit resolution process[.] DHA Ex. 5, at 1. DHA responded on May 15, 2013, providing additional information and documentation to HRSA. DHA Exs. 7, 8. In a letter to DHA dated December 16, 2013, HRSA stated that based on a supplemental review of the DHI 4 The award notice referred to the 2007 HHS GPS (GPS), which is available at Neither party identified any provisions in the award notice that deviated from the requirements in that GPS.

4 4 award conducted on June 4, 2013, it was allowing $933,934 of the costs previously identified as unallowable. DHA Ex. 9, at 1-2. HRSA also stated that the documentation in DHA s May 15, 2013 response supported an additional $230,720 of costs. HRSA further stated that it had determined that DHA did not provide sufficient documentation to support the remaining $990,016 in unallowable direct costs and associated indirect costs identified in the [review report], and that HRSA was therefore requesting a refund in that amount. 5 Id. at 2. DHA timely appealed to the Board pursuant to 45 C.F.R. Part 16. DHA Ex. 11. The record for this decision includes the briefs filed by the parties pursuant to 45 C.F.R. 16.8, DHA s Exhibits 1-110, HRSA s Exhibits A-C, the parties responses to an Order to Develop Record issued by the Presiding Board Member, and DHA s reply to HRSA s response to the Order to Develop Record. 6 DHA filed requests for a hearing and for an oral argument. The Presiding Board Member denied the requests, finding that DHA had not shown that a hearing was warranted under 45 C.F.R (a) and that further development of the record could best be done in writing rather than in an informal conference. Ruling on Requests for Oral Proceedings and Order to Develop Record, dated 2/2/15. Analysis I. DHA s argument that HRSA failed to meet the requirements of 45 C.F.R has no merit. DHA argues as a threshold matter that HRSA s December 16, 2013 letter did not meet the requirements in 45 C.F.R for a final decision. DHA Br. at 2, 4-5, 28; see also DHA Ex. 11 (1/16/14 notice of appeal). DHA argues specifically that HRSA issued its final decision before it [was] clear that the matter cannot be resolved through further exchange of information and views and that HRSA s final decision did not contain [e]nough information to enable the recipient to understand the issues and position of the HHS awarding agency. DHA Br. at 5, quoting section 74.90(a) and (c)(2) (emphasis omitted). DHA stated that it was filing its appeal under protest because HRSA failed to issue an appealable final decision as required by section Id. at 4 n.3; DHA Ex The indirect costs were based on DHA s approved indirect cost rate. DHA had a final indirect cost rate of 72% for the period July 1, 2009-June 30, 2010, and a provisional indirect cost rate of 72% from July 1, 2010 until amended. DHA Ex. 110, at 6. The rate applied to all of DHA s federal awards. Id. 6 HRSA did not request an opportunity to respond to DHA s section 16.8 reply brief. The Board gave HRSA an opportunity to reply to DHA s response to the Order, but HRSA did not file a reply. See Order at 2.

5 5 We conclude that HRSA was not required to engage in any further exchanges of information or views with DHA before issuing the disallowance. As indicated above, before issuing its final decision, HRSA issued a report on the results of the Incurred Cost Review and gave DHA an opportunity to provide additional documentation in support of its position. Nothing in section 79.90(c) required HRSA to offer DHA a further opportunity to provide supporting documentation before HRSA issued its final decision. Moreover, contrary to what DHA implies, HRSA was not required to explain why it found DHA s additional documentation and information insufficient to support the $990,016 disallowed by HRSA s final decision. Instead, HRSA needed only to state the grounds on which it found each of the costs at issue unallowable. HRSA s final decision referred to the review report, which gave a reason for each of the costs identified as unallowable. DHA Ex. 6, Schedule A at 1-27, columns headed Disallowed Reason, Comments, and ORHP Comments. We find that the report to which HRSA s final decision refers provided [e]nough information to enable DHA to understand HRSA s position. Indeed, DHA s briefing of the issues reflects such an understanding. In any event, the Board has consistently held that a federal agency may cure any inadequacies in a final decision during the appeal process as long as the recipient has an opportunity to respond. See Philadelphia Parent Child Ctr., DAB No. 2356, at 4 (2010). HRSA elaborated on the basis for the disallowance in its response brief, and DHA had an adequate opportunity to respond by filing its reply brief. DHA also had an adequate opportunity to respond to the disallowance of additional costs identified in HRSA s response brief. Finally, the Board has previously held that the description of what a final agency decision must include is not intended to provide sanctions for Agency noncompliance and certainly do[es] not offer the remedy of reversing an Agency determination. Vanderbilt University, DAB No. 903, at 86 (1987). The provisions of section are clearly intended instead as general guidelines to inform grantees of how the Department's appeal processes operate. Id. 7 Accordingly, we conclude that HRSA s final decision contains sufficient information, especially when taken together with the additional development of the record during this appeal, to provide DHA with a fair opportunity for review. 7 DAB No. 903 cites to section (e), which was later reorganized and amended as section with no substantive changes. The Board s regulations, which have not been amended since 1997, state: Details of how final decisions are developed and issued, and what must be in them, are contained in 45 CFR C.F.R. 16.3(b).

6 6 II. Based on our review of the record, we reverse the disallowance in part and uphold it in part. We explain below how we dispose of each of the disputed costs, which we identify using the categories in the parties submissions. Each category of costs consists of one or more line items (some including multiple costs), which we identify individually where appropriate. 8 A. Proposal Costs DHA charged to the DHI award for budget year 2011 direct costs of $27,575 for payments to external reviewers hired by DHA to assist in evaluating proposals solicited by DHA for projects funded by the DHI award. HRSA disallowed the costs on the ground that proposal costs are allowable only as indirect costs. HRSA Ex. 31. HRSA cites to 45 C.F.R (b)(1), which provides in relevant part: Bid and proposal costs are the immediate costs of preparing bids, proposal, and applications for Federal and non-federal awards, contracts, and other agreements, including the development of scientific, cost, and other data needed to support the bids, proposals, and applications. Bid and proposal costs of the current accounting period are allowable as indirect costs.... HRSA Br. at 7. (The GPS, at II-31, which HRSA also cites, mentions section 74.27(b)(1).) DHA takes the position that the costs at issue are not covered by the quoted provision because they were were not for preparing anything ; rather, the reviewers were hired to assist DHA in evaluating the responses its aspirant sub-grantees submitted to DHA s own requests for proposals for DHI funds. DHA Reply Br. at 3-4 (italics in original); see also DHA Reply to HRSA s Response to Order at 1 ( these expenses were not the immediate costs of preparing bids ). According to DHA, moreover, the costs are properly charged as direct costs of the DHI grant because the proposals that were reviewed related directly to completing a HRSA-approved goal, namely DHI Goal One: Provide oversight, administration and support to projects undertaken by our partners, Objective B: Establish and support new partner initiatives including those identified through a competitive RFP [request for proposal] process conducted in the spring DHA Br. at 6. 8 Unless otherwise specified, the disputed line items for each category of costs are those listed in DHA Exhibit 31, which expands the spreadsheet at HRSA Exhibit C (captioned Final List of Disallowed Costs by DHA Issue ) to include additional columns captioned DHA Response and Additional Rebuttal. The pages of DHA Exhibit 31 are unnumbered, but the cost categories and line items in each cost category can be readily located.

7 7 Section 74.27(b)(1) applies to the immediate costs of preparing proposals to obtain awards of federal or non-federal funds. The term award encompasses a subaward. See 45 C.F.R (quoted in n.3 above). The proposals at issue here were submitted in response to DHA s requests for proposals for subawards under the DHI grant, so the regulation would apply to the immediate costs of preparing these proposals. However, the costs at issue here were not incurred by the prospective subawardees to prepare the proposals. Instead, the costs were incurred by DHA for a contractor to assist it with the evaluation of the proposals. Thus, section 74.27(b)(1), on which HRSA relied in determining that the costs at issue would be allowable only as indirect costs, does not apply here. Moreover, since DHI was carrying out the grant purpose of identifying appropriate projects for subawards when it evaluated the proposals, it is reasonable to charge the costs as direct costs of the DHI grant. Accordingly, we reverse the disallowance with respect to this cost category. B. Budgeting Tool DHA charged the DHI award for budget year 2011 direct costs of $2, for consulting to provide DHA with a budgeting tool to manage projects/budgets[.] DHA Ex. 31. HRSA disallowed the costs on the ground that they were not within the scope of DHA s approved project and thus not allowable as a direct cost of the DHI award. HRSA Br. at 8. DHA asserts that the budgeting tool assisted with the gap analysis, a requirement of Grant goals and objectives. DHA Reply Br. at 4, citing DHA Ex. 32, at 41. Direct costs are defined as those that can be identified specifically with a particular final cost objective, i.e., a particular award, project, service, or other direct activity of an organization. 2 C.F.R. Part 230, App. A, B.1. Thus, a cost may be charged as a direct cost of an award if it can be specifically identified with that award as a final cost objective. N.E. Louisiana Delta Cmty. Dev. Corp., DAB No. 2165, at 7 (2008), quoting Rio Bravo Ass n, DAB No. 1161, at 9 (1990). Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. Id. C.1. Thus, the costs incurred for the budgeting tool are not allowable as direct costs of the DHI award absent a showing by DHA that they can be specifically identified only with that award. DHA has not made such a showing here. The exhibit on which DHA relies, DHA Exhibit 32, is a program narrative for the period July 1, 2009 through June 30, 2010, and thus is inapplicable to the 2011 budget year to which the costs incurred for the budgeting tool were charged. The program narrative for July 1, 2010 through June 30, 2011, DHA Exhibit 34, identifies To prepare a gap-analysis based on current data as an objective of

8 8 Goal 2, To perform analysis of Delta Health Alliance projects in accordance with evidence-based research guidelines. DHA Ex. 34, at However, we find nothing in that exhibit that describes the budgeting tool or otherwise indicates that the budgeting tool was designed to be used solely to manage the projects funded by the DHI award. Accordingly, we uphold the disallowance with respect to this cost category. C. Compass Group DHA charged to the DHI award for budget years direct costs totaling $69,965 for a contract with the Compass Group. DHA Ex. 31. HRSA disallowed the costs on the ground that they were fundraising costs that are unallowable under 2 C.F.R. Part 230, Appendix B, 17.a. HRSA Br. at 8-9. That provision states in pertinent part: Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions are unallowable. DHA argues that the costs were not incurred for fundraising because no one at Compass Group engaged in direct solicitation of contributions (i.e., fundraising). DHA Br. at 8. According to DHA, Compass Group was hired to develop fundraising strategies to be employed by DHA to enable DHI programs to continue after HRSA funding had come to an end. Id. at Contrary to what DHA suggests, nothing in the regulation limits solicitation of gifts and bequests to direct solicitation by an individual. Moreover, organized fund raising does not occur in a vacuum but typically requires significant planning and development. DHA has not explained why it would be reasonable to allow federal funds to be used for the planning and development of various types of fundraising activities when using federal funds for implementing the activities is prohibited, and we decline to draw such a distinction. Furthermore, some of the services for which the Compass Group billed could arguably be considered a fundraising activity itself rather than planning and development of such an activity. See, e.g., DHA Ex. 14 (letter from Compass Group stating that it [a]ssist[ed] in the creation of messaging for fundraising and publications and in the identification of potential donors and volunteer leadership. ). DHA argues further that the costs are allowable because they fall[] squarely under the approved project goal Develop a comprehensive business plan for sustainability of DHA core services. DHA Br. at 9. DHA does not specifically identify its core services or explain why fundraising was necessary in order to sustain them. In any event, HRSA could not by approving this broad goal authorize the use of federal funds for purposes specifically prohibited by regulation.

9 9 Accordingly, we uphold the disallowance with respect to this cost category. D. Travel and Telephone Allowances DHA charged to the DHI award for budget years direct costs totaling $28, and associated indirect costs totaling $20, for travel and telephone allowances paid to certain DHA employees. HRSA disallowed the costs on the ground that DHA did not provide adequate documentation to show that expenditures for travel and telephone were reimbursed consistently among DHA employees as required by 2 C.F.R. Part 230, Appendix C, 51.a. HRSA Br. at 9. That provision states: Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the non-profit organization. Such costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip and not to selected days of the trip, and results in charges consistent with those normally allowed in like circumstances in the non-profit organization s non-federally-sponsored activities. DHA argues that it paid the travel allowances to certain employees who spent considerable portions of their work days traveling pursuant to DHA s published and Board-approved policies, which were crafted to align with the spirit of the cost principles quoted above. DHA Reply Br. at 5-6; DHA Br. at 11. DHA s Policies and Procedures Manual, Employee Practices, Section 2, states, Select employees may have a travel allowance granted as terns of employment. DHA Ex. 36, at 30. DHA asserts that the amount of the travel allowance received by the eligible, participating employees was less than the amount they would have received had they maintained an actual record of their travel expenses and filed periodic travel vouchers. DHA Br. at 11. DHA also asserts that it incurred lower costs by paying a telephone allowance of 75% of the monthly charge for a participating employee s personal cellular telephone, or $75, whichever was less, than if it provided a cellular telephone to that employee. Id. at DHA essentially admits that it paid the travel costs of certain employees differently from the travel costs of other employees by paying a travel allowance as terms of employment only for certain employees. Regardless of whether this resulted in federal funding sources being charged at a higher rate than non-federal funding sources, we conclude that the travel allowances were unallowable under the regulation on which 9 DHA does not dispute that paragraph 51.a of Appendix C applies to telephone charges, which could be considered expenses for related items.

10 10 HRSA relies as the basis for the disallowance. Paragraph 51.a of Appendix C specifies that travel costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two[.] The travel allowances charged here were not paid on any of these bases. Instead, the travel allowance, as explained by DHA, was an up-front allowance not given for actual trips but as part of an employment contract. In any event, the record does not support DHA s assertion that the amount charged to the DHI awards for the travel allowances was less than if the employees at issue had been reimbursed for their actual travel costs. Indeed, that assertion is undercut by DHA s statement that the amount of the travel allowance was determined based on the projected travel of the employee[.] DHA Br. at 11. DHA also admits that it paid the telephone costs of certain employees differently from the telephone costs of other employees, stating that approvals of applications for telephone allowances are granted within very specific parameters. DHA Br. at 12. DHA failed to establish that paying the telephone allowances at issue here did not result in federal funding sources being charged at a higher rate than non-federal funding sources. As noted above, DHA argues that the cost of the telephone allowance 75% of a participating employee s monthly cell phone bill not to exceed $75 was less than the monthly cost to it of providing a cell phone for the employee s use while on official travel. However, this is a false comparison since DHA does not allege, much less show, that it provided cell phones to any employees on travel. Further, DHA makes no allegation that the amount of the telephone allowance did not exceed the cost of using a landline phone while on travel. Thus, the telephone allowances were not allowable under the applicable cost principles. Accordingly, we uphold the disallowance with respect to this cost category. F. Community Outreach 10 DHA charged to the DHI awards for budget years direct costs totaling $101, and associated indirect costs totaling $17, for promotional items, sponsorships, business card printing and miscellaneous other costs, all of which DHA said were incurred for community outreach. 11 DHA Ex. 31. HRSA disallowed the costs pursuant to 2 C.F.R. Part 230, Appendix B, 1. HRSA Br. at 10. That provision states in pertinent part: 10 DHA s brief notes that cost category E is Intentionally Left Blank. DHA Br. at DHA concedes that of this amount, direct costs of $1,045 and associated indirect costs of $ for sponsorship for fire chiefs are not allowable. DHA Ex. 31, line 86.

11 11 d. The only allowable public relations costs are: ****** (2) Costs of communicating with the public and press pertaining to specific activities, or accomplishments which result from performance of Federal awards (these costs are considered necessary as part of the outreach effort for the Federal award); ****** e. Costs identified in subparagraph[] d above if incurred for more than one Federal award or for both sponsored work and other work of the non-profit organization, are allowable to the extent that the principles in Appendix A to this part, paragraphs B. ( Direct Costs ) and C. ( Indirect Costs ) are observed. The definitions of direct and indirect costs in paragraphs B and C of Appendix A are quoted in our discussion of cost category B above. Consistent with those definitions, the GPS, to which HRSA also cites, provides that the allowable public relations costs described in paragraph d.(2) of the Appendix B may be treated as direct costs but should be treated as indirect costs if they benefit more than one sponsored agreement or if they benefit the grant and other work of the organization. GPS at II-38. HRSA found that the costs are issue here may have benefitted the DHI grant, but they also benefitted the other work of DHA. As such, these expenses may only be charged to the grant under DHA s indirect cost rate. Therefore, the costs related to public relations activities, totaling $119,685.71, are considered unallowable. HRSA Br. at DHA gave only the following response to the basis for the disallowance set out in HRSA s brief: For the vast majority of the period under review, the [DHI] Grant was DHA s only source of funding for the provision of health services in the region, and DHA had no other work unrelated to the goals and objectives of the DHI. Thus, all communications with the public or press during the time period in question were, without qualification, about specific activities or accomplishments under the 12 If it were charged under DHA s indirect cost rate, the $101, at issue here would not be claimed as a direct cost of the DHI grant award. Instead, it would be included in the indirect cost pool used to develop DHA s indirect cost rate and would be distributed to benefitting cost objectives by applying the indirect cost rate to the direct cost base. See, e.g., Benaroya Research Inst., DAB No. 2197, at 2 (2008).

12 12 grant supported activity. HHS Grants Policy Statement at II-37. DHA would be interested to know what other work or other sponsored agreement HRSA believes was advanced by these expenditures. HRSA provides no indication, let alone evidence, of that in either its brief or its spreadsheet. DHA Reply Br. at DHA s argument is not persuasive. As we noted above, a grantee has the burden of documenting the allowability of its expenditures of federal funds. Since a cost must be allocable to a grant award in order to be an allowable cost of that award (2 C.F.R. Part 230, Appendix A, A.2(a)), a grantee bears the burden of showing that a questioned cost is in fact allocable to the award to which it is charged. Thus, where a grantee with multiple funding sources charges the cost of a particular activity solely to one award, the grantee (not the grantor agency) also has the burden to document that only the award charged benefits from the activity. DHA has not met that burden here. DHA s reference to the vast majority of the period under review in the first sentence quoted above in effect acknowledges that for part of the three years at issue here, DHA had programs other than the DHI grant to which the costs at issue might be allocable. In addition, HRSA could reasonably question whether all of the costs at issue were properly allocated to the DHI grant based on the undisputed fact that during the three years at issue, DHA received numerous federal grants in addition to the DHI grant as well as some nonfederal funding. See DHA Ex. 1; DHA Ex. 6, at 2. Accordingly, we uphold the disallowance with respect to this cost category. G. VISA Expenses DHA charged to the DHI awards for budget years direct costs totaling $45, and associated indirect costs totaling $32, for travel and other expenses charged by DHA employees to DHA s VISA credit card account. 14 HRSA disallowed the charges for travel on the ground that DHA failed to document that these charges were incurred towards the sole purpose of meeting the objectives of the DHI award. HRSA Br. at 11. HRSA stated that although DHA had provided documentation that appear[s] to relate to travel activities that occurred during the time period in question, the documentation does not clearly state a DHI-related purpose. Id., citing DHA Ex Although DHA cites to the GPS at II-37, the language DHA quotes appears at page II-38 in the GPS currently available on the internet. 14 These amounts are shown on the parties respective spreadsheets, which identify the line items in this cost category as , 510, , 517, and HRSA Ex. C at 7-8; DHA Ex. 31. DHA refers to the same amounts in its reply brief, but its list of disputed line items omits DHA Reply Br. at 7. There is no clear explanation of this discrepancy.

13 13 DHA does not dispute that, in order for the travel charges to be allowable, the travel must have been for activities funded by the DHI grant. In addition, DHA acknowledges that there were no approved travel vouchers identifying the business purpose of the travel at issue here. DHA Reply Br. at 8. DHA nevertheless takes the position that the costs are allowable because its policy in effect since 2008 allowed pre-approved employees to charge the VISA card for amounts commensurate with their level of authority without follow-up documentation and because DHI was the only project of its kind that DHA had at the time the disallowed costs were incurred. Id. DHA s arguments have no merit. As previously stated, a grantee must be able to provide documentation adequate to establish that each cost charged to an award is, in fact, allowable. DHA admits that it allowed employees to charge expenses to DHI awards without submitting any documentation. This, in and of itself, is a sufficient basis for sustaining the disallowance. DHA s allegation that HRSA knew of this policy, even if true, does not relieve DHA of its obligation since HRSA cannot be estopped from disallowing costs not charged in accordance with the clear requirements of the applicable regulations. See, e.g., Texas Dep t of Human Servs., DAB No. 1344, at 5-9 (1992) (federal agency not estopped from disallowing costs where State alleged that agency knew of State policy that resulted in unallowable costs). Moreover, DHA failed to show that the travel costs are allocable solely to the DHI grant. As indicated above, DHA baldly asserted that during the budget period it had no programs other than DHI to which certain costs might have been related. However, DHA s own exhibit shows multiple funding streams were available during that time period (DHA Exhibit 1), and DHA fails to show that none of these other programs benefited from the travelrelated costs. For example, DHA does not even allege that the employees at issue here worked solely on the DHI grant, much less point to any documentation to support such an allegation. As noted above, the costs in this cost category also include non-travel expenses (which HRSA did not specifically address in its response brief). DHA stated in its initial brief that these expenses (as well as the travel expenses) are supported by the documentation in DHA Exhibit 17. DHA Br. at 15. In its Order to Develop Record, the Board directed DHA to specifically identify the documentation in DHA Exhibit 17 relating to each of the expenses in section G (VISA Expenses) not identified by HRSA as travel costs, e.g., line 501 (medical liability insurance, equipment and software, personal journals), and explain how the documentation establishes that the expense is allowable. Order at 3. In its response to the Order, DHA states that it is resubmitting the documents relating to the non-travel costs as DHA Exhibits DHA Response to Order at 1 n.1. DHA asserts that the non-travel costs include supplies and equipment for DHI projects (including electronic software and hardware), registration and exhibit fees for DHI-related conferences, working meals (with attendees and purpose document), gift cards for DHI program participants (with lists of recipients), DHA vehicle maintenance, medical

14 14 liability insurance coverage for the 21 st Century project clinics (where clinical nurse practitioners were providing primary care services as part of a certified research study), and others. Id. at 1-2. However, DHA provides no explanation of how DHA Exhibits establish that each of the cost items is allowable, as directed by the Board. Nevertheless, we discuss below two types of cost items for which we have been able to identify the relevant documentation and conclude that a portion of the non-travel costs is allowable. 15 Line items 499, 500 and 520 include gift card purchases for budgeted incentives that were disallowed on the ground that there were no lists of who received them. See DHA Ex. 31. The exhibits corresponding to line items 499 and 500 include several documents captioned Gift Card Signature Sheet listing client names and the amount $10, $20, $40 or $60 next to each name. DHA Ex. 56, at 26; DHA Ex. 57, at 8-9, 12; Each signature sheet also has a space for the signature of each client s outreach worker or mentor, but several of the sheets are missing signatures for some or all of the clients. The caption for some but not all of the signature sheets specifies a year or month and year. We find that the signature sheet at pages of DHA Exhibit 57 constitutes adequate documentation of gift card purchases totaling $540 because there are signatures for all of the clients and the caption includes the date January (The amounts listed on the sheet total $580, but handwritten notes indicate that two gift cards totaling $40 were returned. ) We conclude that none of the other signature sheets adequately document gift card purchases because the clients outreach workers or mentors did not sign in the space provided, possibly indicating that the gift cards were not received, and/or because there is no date on the signature sheet to indicate that the signature sheet relates to any of the disallowed gift card purchases. Line item 501 includes medical liability insurance that HRSA disallowed on the ground that such insurance is not allowed unless for research. DHA Ex. 31. DHA Exhibit 58 includes a document titled Healthcare Liability Declarations issued to DHA covering professional liability. DHA Ex. 58, at 19. The exhibit also includes a requisition for the liability insurance, in the amount of $5,212, with the following justification: professional liability insurance coverage 21 st century clinics to meet the goal of improved health outcomes, clinic nurse practitioners are providing primary care services as part of an IRB certified research study. Id. at 18 (emphasis in original). The GPS 15 DHA asserts that the documentation in these exhibits encompasses more expenses than those now disallowed by HRSA since DHA cannot determine which of the expenses in each line item have been allowed by HRSA and which have not. DHA Response to Order at 2. Since HRSA did not file a reply addressing this assertion, we assume that the costs we identify as allowable have not already been allowed by HRSA. 16 We do not consider whether the documentation establishes that the gift cards were purchased for allowable DHI grant purposes since HRSA did not dispute they were but, instead, disallowed the cost of the gift cards on the limited ground that DHA had not documented who received them.

15 15 provides that [m]edical liability (malpractice) is an allowable cost of research programs at educational institutions only if the research involves human subjects and must be treated as an indirect cost unless special insurance is required as a condition of the grant. GPS at II-35. DHA Exhibit 58 contains no indication that the research study the nurses were involved in was at an educational institution. Thus, the documentation is not adequate to establish that the insurance costs are allowable even if they could properly be treated as direct costs. Accordingly, we reverse the disallowance with respect to direct costs of $540 and associated indirect costs of $ (72% of $540), and uphold the remaining amount disallowed with respect to this cost category. H. Travel Between Offices DHA charged to the DHI award for budget years direct costs totaling $9, and associated indirect costs totaling $6, for travel costs claimed by employees. HRSA disallowed the costs of a total of 21 line items on the ground that the employees were not on official travel but rather were being reimbursed for the costs of commuting, i.e., for meals and mileage from their homes to DHA Offices. HRSA stated that DHA had not provided documentation to support its claim that expenditures were for mileage while traveling to other DHA offices or to off-campus sites. HRSA Br. at 11-12; see also DHA Ex. 31. The Board s Order to Develop Record noted that DHA Exhibit 31 states that travel claims for each employee were previously provided to HRSA and directed DHA to provide the travel claims and explain how the travel claims show that each line item in this cost category is allowable. Order at 3. In its response to the Order, DHA states that it is submitting Exhibits and that the travel claims in these exhibits reflect the dates and miles traveled by the employees away from their official duty stations [listed in DHA Ex. 40] and also contain the explanation of the travel s direct relation to the DHI Grant. DHA Response to Order at 2. Contrary to what DHA represents, the exhibits it submitted for line items , , and 332 do not include travel claims reflecting dates and miles traveled. DHA Exs. 86, The exhibits for the remaining line items include travel claims submitted by the employees at issue on claim forms titled Travel and Expense Reimbursement or Expense Reimbursement, but these forms specify only the travel destination and not the location where the travel began. Thus, we cannot determine based on these forms alone that the mileage costs or any meal costs associated with the travel were for official travel as opposed to commuting.

16 16 However, the exhibits DHA submitted for line items 229, 230 and 232 (all pertaining to a single employee, A.P.) and line item 298 (pertaining to employee E.J.) also include lists of travel dates, the starting and ending locations for each leg of the travel on each date, and the miles for each leg of the travel. As explained below, these lists, together with other information in the record, are a sufficient basis for finding some of these line item costs allowable. The documentation for A.P. shows travel from Stoneville, MS to Indianola, MS and back. DHA Exs. 74, at 5; 75, at 4-5; 76, at 4. A.P. lived in Greenville, MS (see, e.g. DHA Ex. 74, at 1), and his duty station during the periods in question was Stoneville (DHA Ex. 40). 17 Thus, this documentation establishes that the mileage and meal costs claimed for A.P. for the trips between Stoneville and Indianola were for official travel, not for commuting from his home to his workplace and back. Nevertheless, we uphold in part the disallowance for the line items pertaining to A.P. DHA Exhibit 74 shows that of the $ of direct costs claimed for A.P. on line 229, only $ was for travel. 18 DHA Ex. 74, at 1-3; see also DHA Ex. 31. We therefore reverse the disallowance for this line item only with respect to direct costs of $ and associated indirect costs of $ (72% of $207.79) and uphold the disallowance with respect to direct costs of $57.45 and associated indirect costs of $ We reverse the full amount of the disallowance for line item 230, i.e., direct costs of $ and associated indirect costs of $ See DHA Ex. 31. We do not reverse any of the disallowance for line item 232, i.e., direct costs of $55.50 and associated indirect costs of $39.96, because we cannot determine how the $55.50 relates to the amounts shown on the Expense Reimbursement form, which total $ DHA Ex. 76, at 3; see also DHA Ex. 31. The documentation for E.J. shows travel between Stoneville and Indianola. DHA Ex. 85, at 4-5. E.J. lived in Greenville (see, e.g., DHA Ex. 85, at 3), and his duty station during the period at issue was Indianola (DHA Ex. 40). Thus, this documentation establishes that the mileage and meal costs claimed for E.J. for the trips between Stoneville and Indianola were for official travel, not for commuting from his home to his workplace and back. We therefore reverse the full amount of the disallowance for line item 298, i.e., direct costs of $ and associated indirect costs of $ See DHA Ex. 31. Accordingly, we reverse the disallowance with respect to direct costs of $1, and associated indirect costs of $ and uphold the remaining amount disallowed with respect to this cost category. 17 DHA Exhibit 40 contains no indication of the source of the information regarding the employees duty stations. We nevertheless rely on it here since HRSA has not disputed its accuracy. 18 The remaining amount was for supplies, and DHA did not specifically address these costs in its response to the Order.

17 17 I. J.H. Travel DHA charged to the DHI award for budget years direct costs totaling $10, and associated indirect costs totaling $7, for travel costs of J.H. as well as the cost of an iphone and a printer for J.H. s use. HRSA disallowed the costs on the ground that J.H. was not on official travel when he travelled from his home in Southaven, MS to DHA s Ridgeland, MS office because J.H. s duty station was Ridgeland and on the ground that the iphone as well as a printer located in J.H. s home were unallowable personal expenses. HRSA Br. at 13; DHA Ex. 31. DHA asserts that, during the periods at issue, J.H. s duty station was at his home in Southaven and all of the costs are therefore allowable. DHA Br. at 16. DHA noted that the travel costs included lodging near DHA s offices in Oxford, Stoneville and Ridgeland and that J.H. travelled between those locations as needed from day to day. Id. at DHA provided a copy of J.H. s Flexible Workplace Agreement, which shows his home address in Southaven as his duty station. DHA Ex. 41. The Board s Order to Develop Record stated that J.H. s Flexible Workplace Agreement shows that Southaven was J.H. s official duty station as of July 2011, relying on the fact that the agreement was signed by the parties on July 27 and 28, Order at 3. Thus, the Order indicated that only travel costs incurred after the agreement was signed could be allowed, directing DHA to specifically identify the line items for budget year 2011 it contends were incurred in July 2011 or after that date and provide source documentation that shows the date each such line item was incurred. Id. In its response, DHA stated, Although [J.H.] s Flexible Workplace Agreement was not executed until July 2011, [J.H.] was hired in late March 2011 on the understanding that he would be working out of his Southaven home office, and immediately thereafter he began traveling regularly to Ridgeland to oversee the EHR group. DHA Response to Order at 2-3, citing DHA Ex. 58, at 2. DHA also submitted an exhibit that it said includes documentation for every disputed line item in this cost category. Id. at 2, citing DHA Ex. 90. DHA Exhibit 58, at 2, is a document dated April 20, 2011 titled DHA EHR Personnel Announcement which announces in relevant part that J.H. has been hired as Assistant Vice President, Information System[.] However, this document contains no indication of J.H. s duty station or the locations where he would be working. Thus, DHA failed to establish that Southaven was J.H. s duty station earlier than July 27 or 28, In addition, DHA Exhibit 40 (not cited by DHA with respect to this cost category) appears to undercut DHA s position that Southaven was J.H. s duty station since it shows that J.H. was hired on March 21, 2011 and that his duty station until at least December 31, 2011 was Memphis Home Based Office.

18 18 Moreover, although DHA claims that DHA Exhibit 90 includes documentation for every disputed line item (DHA Response to Order at 2), we are, with one exception, unable to determine when the travel costs were incurred since the Travel Reimbursement forms in that exhibit do not clearly correspond to the direct costs of any of the line items except one. The Travel Reimbursement form for line item 324 shows that that those travel costs was incurred before July 27, 2011, the earliest date for which J.H. s travel costs could be allowable. DHA Ex. 90, at 69. Thus, there is no basis for allowing any of the travel costs. Moreover, we conclude that the costs of the iphone and printer are unallowable. The record shows that these items were purchased on May 20, DHA Ex. 90, at 1. As we found above, DHA failed to establish that Stonehaven was J.H. s duty station before July 27, Thus, these items were personal expenses at the time they were purchased. While there is no dispute that these items were used at Stonehaven once it became J.H.'s duty station, DHA does not provide any basis for finding that costs that are unallowable at the time they are incurred may become allowable based on their subsequent use. Accordingly, we uphold the disallowance with respect to this cost category. J. Meals at DHA Meetings DHA charged to the DHI award for budget years direct costs totaling $5,661 and associated indirect costs totaling $3, for the cost of meals during DHA meetings. HRSA disallowed the costs on the ground that they were not allocable to the DHI grant, citing the following provision of the GPS: When certain meals are an integral and necessary part of a conference (i.e., a working meal where business is transacted), grant funds may be used for such meals. 20 HRSA Br. at 13, citing GPS at II-96. DHA maintained that it had submitted documentation to HRSA showing the business purpose of the meals. DHA Reply Br. at 10. The Board s Order to Develop Record directed DHA to provide any source documentation previously submitted to HRSA that includes this information and explain how it shows that each line item in [this cost category] was incurred for a working meal within the meaning of the GPS provision quoted above. Order at 3. DHA contends that the documentation in DHA Exhibits 91-92, provided in response to the Order, lists the attendees and explains the business purposes of the meals. DHA Response to Order at 3. As discussed below, none of the documentation is adequate to establish that the meal costs are allowable. 20 Although the GPS refers specifically to meals that are an integral and necessary part of a conference, we need not reach the question whether this requires that meal costs be incurred during a conference to be allowable.

19 19 DHA Exhibit 91 includes documentation that relates to line items DHA Ex. 91, at 1-2. For each line item, there is a Request for Payment form from Pharmacy Practice to the University of Mississippi that specifies the purpose of the meal or meals and the individuals involved. The purposes specified include breakfast or lunch for Physician Outreach and lunch or dinner with Community Pharmacy Residency Candidates. Id. at 8, 10, 12, 14, 19, 21. The exhibit also includes a budget justification for DHI Project #29: Delta Pharmacy Patient Care Management Project for budget year 2010 and an unsigned statement asserting that the budget shows that residency and physician outreach were objectives of that project. Id. at 1-7. However, even if physician outreach and recruiting pharmacy residency candidates were activities within the scope of the DHI grant, it does not necessarily follow that meals with physicians and pharmacy residency candidates were allowable costs. Nothing in the documentation described above shows that the meals themselves had a business purpose rather than a solely social purpose, i.e., that the meals were working meals within the meaning of the GPS. DHA Exhibit 92 includes documents that relate to the remaining 12 line items in this cost category. For each of five line items, DHA provided a memorandum on DHA letterhead dated in June 2012 and addressed to HRSA auditors with the subject line Expense for Meeting and a description of the meeting purpose that suggests that the meeting (during a meal) was related to the DHI grant. DHA Ex. 92, at 9, 13, 19, 32, 55. However, there is no supporting documentation for these descriptions. For another line item, DHA provided a statement describing a meeting purpose that appears to be related to the DHI grant, but the statement is undated and unsigned. Id. at 38. The documentation for the remaining line items does not specifically identify a business purpose for the meeting. Thus, none of the documentation provided is sufficient evidence to reverse the disallowed meal costs. Accordingly, we uphold the disallowance with respect to this cost category. K. Event Costs DHA charged to the DHI award for budget years direct costs totaling $6, and associated indirect costs totaling $4, for event costs, including rental of space and provision of refreshments at a gala celebration at the B.B. King Museum to celebrate the one-year anniversary of the Indianola Promise Community. HRSA disallowed the costs on the ground that they constituted entertainment costs. HRSA Br. at 14. The cost principles at 2 C.F.R. Part 230, Appendix B, 14 provide that entertainment costs, including amusement, diversion, and social activities and any costs directly associated with such costs are unallowable. In addition, HRSA found the costs unallowable on the ground that the documentation in DHA Exhibit 18

20 20 (cited in DHA s brief) does not show that any of the costs have a sole purpose of meeting the objectives of the DHI award and thus, although the costs may have benefitted the DHI grant, they also benefitted the other work of DHA. HRSA Br. at 14. DHA disputes that the costs are entertainment costs and argues that the documentation in DHA Exhibit 18 shows that the costs were incurred instead for community education, delivery of program services, and the dissemination of technical information relating directly to HRSA-approved goals and objectives, specifically the goal conduct community-based educational events. DHA Br. at 18; DHA Reply Br. at 10. DHA also asserts that for the vast majority of the period under review, the DHI Grant was the only source of funding for DHA to provide health services in the region, and DHA has no other work unrelated to the goals and objectives of the DHI so that all community programming during the time period in question necessarily related to DHI. DHA Reply Br. at 11. We need not reach the question of whether the costs are entertainment costs since we conclude that DHA has not met the burden of showing that a questioned cost is in fact allocable to the award to which it is charged. As we noted in our discussion of the costs in cost category F, DHA s reference to the vast majority of the period under review in effect acknowledges that for part of the years at issue, DHA had programs other than the DHI grant to which the costs at issue might be allocable. In addition, HRSA could reasonably question whether all of the costs at issue were properly allocated to the DHI grant based on the undisputed fact that during the two years at issue, DHA received numerous federal grants in addition to the DHI grant as well as some non-federal funding. See DHA Ex. 1; DHA Ex. 6, at 2. Accordingly, we uphold the disallowance with respect to this cost category. M. DCG Invoices 21 DHA charged to the DHI award for budget years direct costs totaling $42, for payments made under a contract with DCG, Inc. HRSA disallowed the costs on the grounds that the purpose of the services provided was unclear and invoices for the services billed by DCG or its subcontractor were missing or lacked support. HRSA Br. at 15. In addition, HRSA found the costs unallowable on the ground that the 21 DHA s briefs have a heading titled L. DHI Partners Workshops but DHA then states that the direct and indirect expenses in this category were included in other cost categories, and there is no discussion under this heading. DHA Br. at 18 n.5; DHA Reply Br. at 11 n.8.